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May 10, 2007 | 17:40 GMT

13 mins read

Global Market Brief: Uneasy Alliances in Nigeria

After an extraordinarily violent year in Nigeria, a new government is poised to seize the reins May 29. In part, the violence in 2006 and early 2007 was brought about by politicians using militants in the Niger Delta region to try to get a bigger share of oil revenues. With the election over and the leadership transition imminent, it seems such power balances are about to be reordered in a way that should reduce the attacks aimed at the oil industry — that is, if the militants and the politicians who sponsored them can hold together. If not, all bets are off. After two relatively successful terms ("relatively" is a very operative word in Nigeria), Nigerian President Olusegun Obasanjo attempted to rejigger the electoral system in 2005 and 2006 to allow himself an unprecedented third term. A senate vote supported by presidential aspirant Vice President Atiku Abubakar rejected this bid, ensuring that Abubakar would feel Obasanjo's wrath. It is easy to see why; Nigeria's oil production capacity is about 3 million barrels per day (bpd), and with crude oil at $60 a barrel its exports easily bring $50 billion in revenues annually — and few checks and balances exist to manage those revenues. But after eight years of Obasanjo being the man who divvies up the oil spoils, many (if not all) other Nigerian politicians believed it was time for someone else to have the big chair. One of those politicians decided that getting Obasanjo out of power and getting himself in was important enough that he was willing to wreck a few things. Consequently, he helped create the Movement for the Emancipation of the Niger Delta (MEND), an ethnic Ijaw militia in the Niger Delta region, in December 2005 and set it on the path to attacking the country's oil infrastructure. Violence targeting Nigeria's oil industry is nothing new. Attacks against pipelines and other infrastructure are a simple fact of life, and kidnappings — even mass kidnappings — occur regularly. Militants have occasionally taken speedboats up to 50 miles out into the open ocean to attack offshore platforms. Niger Delta politicians have manipulated politically motivated militant groups before, but their impact largely was limited to state and local governments. Only rarely have militant attacks disrupted Nigeria's oil industry on a large scale. After all, if the oil stopped flowing, so would the money the militants ultimately were after. This is what made MEND different. MEND learned from its predecessors like the Ijaw Youth Council, which morphed into the Niger Delta People's Volunteer Force, and the Niger Delta Vigilantes/Icelanders, expanding upon their local successes (and likely incorporating those groups' weapons and fighters). MEND's goal was to not just be another militant group after bribes or payoffs (or demanding social justice for Niger Deltans whose livelihoods have failed to benefit from the developing oil sector). The group set out to affect the underlying political order to head off Obasanjo's third term and make the Delta region a political force to be reckoned with. Thus, not only did the normal taboo against inflicting substantial damage on the oil industry not apply, the damage was the goal. MEND's logic was that if Obasanjo intended to stay, MEND would demonstrate the price to everyone. The strategy worked, and Obasanjo gave up on getting a third term — albeit at a cost of taking some 600,000 bpd of Nigerian crude exports off line for most of 2006. The strategy also got Goodluck Jonathan, an ethnic Ijaw, elected as vice president, giving the Ijaw their first direct voice in the government's top echelons. These developments seem to have set the stage for MEND to stand down, as the reason for the group's heavy-hitting attacks seems to have faded — and indeed, there were virtually no attacks during the weeks leading up to the elections. After the May 29 leadership transfer, it should be relatively smooth sailing for the oil industry. But on May 9, the whole thing might have fallen apart. On that day, MEND's spokesman flat out labeled Jonathan as the group's political patron and warned him that if he did not provide them with sufficient income, their attacks against the Nigerian oil industry would most certainly continue. Leading up to Jonathan's outing, MEND carried out a week of attacks that took 200,000 bpd off line.
That statement ushered in an eerie quiet May 10, suggesting that MEND's political leader and its paramilitary leaders are in the midst of one hell of a shouting match. The paramilitaries obviously feel Jonathan's loyalty to them is in question, to the extent that they consider outing him a necessity. Meanwhile, Jonathan has to be furious that he has just been exposed as the decision-maker behind an 18-month sabotage campaign. In many countries, Jonathan would already be in prison — or at least under house arrest pending an investigation — but in Nigeria such revelations simply result in arched eyebrows and a few people saying, "Ahhh, so it was him." (Other state governors are known to have started and aided militant gangs; Peter Odili in Rivers state did just that during his campaigns, but he is still a welcome member of the ruling People's Democratic Party). The challenge for the incoming administration will be to find a way to give the Niger Delta states more resources without unduly upsetting the various power balances in the rest of the country. Currently, the oil-producing region shares 13 percent of the federal government budget in special "oil derivation funds," on top of the region's regular budgetary allowance from Abuja; some militants have demanded that the oil derivation fund amount be boosted to 50 percent. This is a sore point for other regions of the country — especially the north, which feels it is time for it to have more power and resources after the eight years of rule under Obasanjo, a southerner from the Yoruba tribe. Jonathan was made part of the incoming administration explicitly because of his executive experience as governor of a leading oil-producing state, because he was seen as preferring to deal quietly with problems behind the scenes and because his Ijaw tribal credentials would put him in a good position to manage militant issues. Yet it has been revealed that he has not been managing militant issues but the militants themselves — and the militants are not so thrilled with such management. The only unanswered question now is why MEND decided to out Jonathan when it did. That is unclear, but one thing is sure: Nigeria's president distributes the country's oil money by a host of informal means; Obasanjo's impending departure means that an entirely new set of informal means has to be set up, and MEND has no intention of being on the outside for another eight years. BULGARIA/RUSSIA/EU: Bulgarian Prime Minister Sergei Stanishev and Energy Minister Rumen Ovcharov arrived in Moscow on May 7 for Stanishev's first official visit to Russia, where he discussed energy with Russian Prime Minister Mikhail Fradkov and Russian President Vladimir Putin. The energy talks centered on projects Sofia is working on with Russia, such as the Blue Stream-2 pipeline and the Burgas-Alexandroupoli oil pipeline. The meeting comes at a time when political divisions threaten to destabilize Bulgaria — especially between the country's pro-EU and pro-Russian factions. While in Russia, Stanishev said Ovcharov will be suspended. He also said Bulgaria could sell its shares in the Burgas-Alexandroupoli pipeline and seek other independent options. UKRAINE/RUSSIA/EU: A 30-meter section of the Urengoy-Pomary-Uzhhorod natural gas pipeline in Ukraine was damaged in an explosion May 7 near the village of Luka, in Ukraine's Kiev region. Ukrainian Prosecutor-General Svyatoslav Piskun said May 8 that the explosion was caused by land subsidence that led to a break in the line, which represents officials' negligence. Although supplies were not disrupted — natural gas in storage in western Ukraine was brought on line to replace the interrupted supplies — and no one was hurt, the blast bodes ill for other reasons: Russia's care (or lack thereof) for its pipelines. Small breaks in Russia's pipeline system are estimated to occur every two to three months, and large-scale breaks have been occurring every one to two years. Russia's reliability as an energy exporter has been in question since it began using energy as a political tool, but its ability to deliver supplies via under-maintained infrastructure is becoming even more unpredictable as breaks in the lines continue. RUSSIA/CANADA: Canada's LionOre Mining International issued a statement May 8 saying that Norilsk Nickel's cash bid of $5.3 billion is a "superior proposal" to Swiss mining group Xstrata's $4.6 billion bid. If the deal goes through, the acquisition — reportedly the largest foreign takeover by a Russian company — is far larger than any other foreign acquisitions by Norilsk Nickel, but it is unlikely to be the last. If Norilsk Nickel's bid on LionOre is any indication of the company's future plans, it is only going to continue to grow — and fast. As with many Russian companies, the looming threat of a government takeover means Norilsk risks having these gains swallowed up by a bid from the Kremlin. But Russia wants to extend its influence even further into the world commodities market, and will likely allow Norilsk Nickel to continue its growth plans before the government makes any moves on the company. Since Norilsk already controls nearly 20 percent of the nickel market, an eventual government takeover of Norilsk by the Kremlin will give the Russian government another commodity with which it can exert its influence abroad. CHINA/AFRICA: China's Foreign Ministry appointed Liu Guijin as China's first-ever special representative on African affairs May 10. His focus will first be on Darfur — to which China's commitment of peacekeeping troops was just officially announced May 8. Liu is a seasoned Africa expert, former ambassador to both Zimbabwe and South Africa, and former head of the Foreign Ministry's Department of African Affairs. Apart from managing China-Africa relations and interactions, Liu will effectively become the central Chinese front-man on all African issues. CHINA/U.S.: China's Vice Minister of Commerce, Ma Xiuhong, formally sealed $4.3 billion worth of business deals for U.S. businesses May 9, exactly two weeks before U.S. Treasury Secretary Henry Paulson and Chinese Vice Premier Wu Yi are due to meet at the second Strategic Economic Dialogue in Washington. Ma is leading a delegation of executives from more than 200 Chinese companies in a 24-city, 23-state tour of the United States to lobby their American counterparts, carrying with them offers of investment capital. This is part of a typical routine that Beijing undertakes to "sweeten up" U.S. lobby groups in the run-up to any major high-level diplomatic meeting. "Sweeteners" usually include Chinese concessions on intellectual property rights, the environment, or political/religious dissidents. Beijing hopes to relieve congressional pressure on the White House, strengthening the Chinese bargaining hand before negotiations start over more sensitive and controversial issues — such as the American $232 billion bilateral trade deficit with China, and Beijing's continued grip on its tightly managed currency. INDIA: Indian company Flyington Freighters said May 9 that it is backing out of a $1 billion order for freight planes from Boeing and opting for a deal with Airbus for six A330-200F cargo planes. The airline — which will start operations in July 2007 using leased Airbus planes — originally planned to sign contracts with both companies, but has opted to abandon the Boeing deal. Airbus recently announced that it will be investing $1 billion or more in the Indian airline industry and expects to receive orders worth $105 billion from Indian airlines over the next two decades. Kingfisher Airlines, another recent start-up airline, has ordered a total of 10 passenger planes from Airbus. Despite the opportunities in India, coupled with recent vigorous orders from Emirates airlines, Airbus is still in trouble. The heavy losses associated with production of the plane have led Airbus parent company EADS to restructure Airbus, cutting jobs and reorganizing production. These cuts have spurred labor unrest, particularly in France. BOLIVIA/BRAZIL: Bolivian President Evo Morales said May 10 that negotiations between Bolivia and Brazil over the purchase of two refineries operated by Brazilian state company Petroleo Brasileiro (Petrobras) are nearly complete, thanks to an intervention by Brazilian President Luiz Inacio "Lula" da Silva. Brazil had established a May 10 deadline to finalize negotiations or refer the talks to a mediation court. No details are available as to the purchase price of the refineries, though Brazil had demanded market value for the operations; Bolivia's latest offers were significantly below market value. The nations had faced growing tensions — at the dispute's height Bolivia was threatening to appropriate the refineries without compensation if its offer was rejected, and Brazil threatened to cease further investment in Bolivia. Although there is no clear cause for an amelioration of tensions, successful resolution appears likely. BRAZIL: Brazilian President Luiz Inacio "Lula" da Silva signed a decree May 4 allowing Brazil to break the patent of the Sustiva (efavirenz) HIV drug produced by Merck & Co. Inc. The move comes after negotiations between the government and Merck ended May 3 because of price disagreements. Merck offered to reduce the drug's price from $1.57 to $1.10 per pill, but Brazil demanded the price Merck offers Thailand: $0.65 per pill. The Health Ministry said a generic version of the drug will now be imported from India, which sells for $0.45 per pill. About 75,000 Brazilians use efavirenz, and it is estimated that by breaking the patent Brazil will save $237 million from its HIV/AIDS drug bill from now until the patent's expiration in 2012. Brazil has repeatedly bargained with pharmaceutical companies for lower drug prices by threatening to break patents under the Trade-Related Aspects of Intellectual Property Rights (TRIPS) rules established by the World Trade Organization, which allows such patent breach in case of emergency. This is the first time Brazil has actually carried through on its threat, however. It is unlikely that this will exacerbate intellectual property concerns outside of the pharmaceutical sector, because TRIPS would not apply in most cases. Nonetheless, the next time Brazil enters into trade negotiations with the United States it is likely to come under pressure to back down from its current stance.

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